What is wrong with your IT budget? Is it too high? Too low? Or worse yet, maybe you don’t know. Now more than ever it is important to analyze the spending activities that comprise your IT budget. As an IT leader and business consultant, I can confidently state that assessing a blanket xx% cut across the board is not an effective method to optimize an IT budget and leaves too much to chance. While it may be effective at getting the necessary haircut, it does not rank the importance of IT activities and puts critical revenue generating functions at risk. Additionally, it strains the relationship between business and IT leaders. The business side claims that IT is too expensive and the technology side claims that the business side does not sufficiently understand what it takes to keep the systems maintained and available.
Business and technical leaders both have a responsibility when it comes to the IT budget and therefore both sides must come together to agree on how to optimize the IT budget. First and foremost is gaining transparency and understanding of the activities in the IT budgets. This is critical to minimizing wasteful spending and to optimize the IT activities which support revenue generation. Business leaders need transparency and understanding of the technology that supports their areas. IT leaders can help by categorizing their activities.
- 1. Keep the Lights On. These are the activities that are necessary and required in order for the system (I will use the term ‘system’ to broadly describe applications, databases, networks, etc. whether hardware or software) to run and be available in accordance with the users’ expectations (24/7, 8 to 5 Monday through Friday, etc.). It is important that this does not include activities (described below) that enhance or change the system in anyway. This does not include organic growth or other capacity planning. It only keeps the system running in an “as is” state.
- 2. Regulatory and Compliance. Whether required for compliance by your internal compliance team or by an outside regulatory agency, these are the activities that are necessary to update or change the system to comply with these requirements. These changes usually have a deadline associated with them. You can further break this category into group A (external agency) and B (internal agency) if you need to more closely understand the nature of these activities.
- 3. Upgrades and Updates. These changes are strongly recommended by hardware and software vendors for proper maintenance. These are updates to the system that might be necessary because of a product version change or other end of life event that forces the current version to become obsolete or go “out of support”. It does not mean that the system comes to screeching halt, rather it means that without it, the system becomes outdated and either performance is compromised or repairs become more difficult.
- 4. Growth. This category describes the activities needed to keep pace with the organization’s growth.
- 5. System Enhancement. Technology groups tend to enjoy this category the most because of their passion to see and work with the latest and greatest. As a business leader, be careful not to discount the value associated with enhancements as many times there is a valid business case that is simply not articulated in business or revenue generating terms.
- 6. Projects. Project activities could result from business needs or from IT needs, however, they both are grouped in the same category and both need to evaluated against the discretionary budget and the value they bring to the organization.
With a common way to parse and describe the often indescribable IT budget, business and technical leaders can effectively optimize the IT budget, improve their working relationships, and foster greater understanding of each other’s worlds.